It's been a tough few years for telecom giant AT&T (T 0.18%). In retrospect, its decisions to acquire DirecTV and then Time Warner were not only ill-advised, but expensive. Those deals have since been (mostly) unwound, but their exits left the company even more heavily indebted.
The wireless market reaching the point of saturation right around the same time a global pandemic was rattling everything only exacerbated these problems. At least rival Verizon Communications (VZ -0.73%) was more focused on its core business during this tenuous time for AT&T, and it had a better stock performance to show for it.
As the old adage goes, though, nothing lasts forever. AT&T may be the better investment of the two telecom names now, in light of last quarter's results.
AT&T is doing key things better than Verizon
Don't read too much into this; one quarter doesn't make a trend. On the other hand, all big trends start out with that first step. Perhaps we're at the pivot point for one company's success at the other's expense.
That's what comparing a handful of key quarterly performance measures suggests. Take raw wireless subscriber growth as an example. AT&T added 464,000 (net) postpaid wireless subscribers last quarter, maintaining an uninterrupted two-year streak of customer growth. It picked up another 123,000 prepaid subscribers as well, rekindling what had been persistent growth until late last year and early this year.
Meanwhile, although Verizon added a total of 612,000 retail postpaid accounts in the second quarter, this growth has been inconsistent at best, and driven mostly by consumers signing up for its wireless at-home internet service rather than signing up for cellphone service. It only added 8,000 postpaid phone accounts in Q2 and actually lost another 304,000 prepaid phone accounts. That's the fifth time in the past six quarters the company has shed (net) prepaid customers.
Given this data, it's not surprising to learn Verizon is struggling more than AT&T to keep the customers it already has. Verizon's Q2 churn rate among its retail postpaid customers rolled in at 1.07%, remaining above 1% for the sixth straight quarter. AT&T's churn rate for the second quarter came in at a healthier 0.95%, logging a second consecutive reading of less than 1%.
Perhaps the most telling metrics from the two companies' second-quarter reports, however, are their profitability measures. AT&T's operating income grew from $4.96 billion a year earlier to $6.41 billion this time around, reaching 21.4% of total revenue. Verizon's operating profit of $7.22 billion was actually down year over year. That still translates into an operating profit margin rate of 22.1% -- better than AT&T's.
Comparing overall (adjusted) EBITDA margin rates, though, AT&T's is actually a tad higher at 37.1%. And most of AT&T's profitability measures have been improving at a faster rate than Verizon's for a while now.
VZ Operating Margin (TTM) data by YCharts.
It's a subtle clue that AT&T has a firmer handle on its spending, and its seeing better returns on that controlled spending.
The little things can mean bigger things
It's absolutely possible to become so fixated on numbers that you forget a company is more than accounting statements and profitability measures. Ideas, people, and products matter too ... now, and in the future. A well-conceived growth strategy or savvy cost-cutting can make a world of difference, even if such plans never show up on an income statement.
On the flip side, numbers do reflect how well a business plan is being executed, and how well a company is being managed. That's why the seemingly small differences described above are kind of a big deal. AT&T and Verizon have been the powerhouses in the business for a while now. They've both had a chance to figure out and refine their operations, so you'd expect them to look more similar. To see them not be similar suggests something's afoot.
In this case, that something is looking like better days for AT&T, as Verizon begins to struggle.
